The ECB cut rates by 25 bps, from 3.25% to 3%, as expected. Many were calling for a 50-bp rate cut, but this move was deemed unnecessary in view of the already very slow inflation trend. The EURUSD reacted on Friday to new expectations of rate cuts for the first months of 2025, with a target of 2% by mid-2025. This was enough to push the EURUSD back below 1.0400.

The EUR is also struggling against sterling, which appreciated by almost 5% in 2024, rising from 0.8700 to 0.8218 in November. This year, interest rates have remained firm above 3.8%, with a return to 4.35% at the end of the year. The difference in trajectory between EURO rates, scheduled to fall from mid-2024 to June 2025, and UK rates, which are expected to remain strong for several months yet, works in Sterling's favor. Economic activity is expected to confirm a rebound in October, with industry back in the black.

The JPY recovered against the EUR, dropping back below 160 last week, after hovering near 175 in the middle of summer: rumors of even moderate rate hikes by the Bank of Japan should keep the EUR below 160 for a long time to come. This movement is accompanied by a marked improvement in confidence among major Japanese manufacturers inQ4.